Good morning, ladies and gentlemen. Welcome to our conference, where we will present the results of mBank Group in the first quarter of 2025. The speakers today are Mr. Pascal Ruhland, Chief Financial Officer, Mr. Marek Lusztyn, Chief Risk Officer, and Mr. Arkadiusz Balcerowski from our macro team. Pascal, please start.
Thank you very much, Asia. Good morning and welcome to our conference call. We have started the year on a successful note, and I'm excited to present this quarter results to you today. Let me bring the six main observations of the quarter into perspective. As you can see on the slide, first and foremost, we continue to generate high sales in both customer segments, leading to a dynamic increase in balance sheet volumes. Our core loans grew by 9% year over year, capturing additional market share. Second, we generated revenues exceeding PLN 3 billion once again. Third, our cost-to-income ratio, including the linear contribution to the Resolution Fund, was at an excellent level of below 30%. Continuing on the next slide with number four, we observed positive trends in incoming and pending court cases, reflected in declining costs of legal risk related to FX loans.
This marks our fifth consecutive quarter with lower impact. Fifth, we reported a high quarterly net result and a solid return on tangible equity. Following the issuance of our AT1 capital, we believe this metric, return on tangible equity, better reflects the profitability of our business. Finally, we maintain safe buffers over the minimum capital requirements, which forms the basis for our future dynamic growth. Now let's move to slide five, which represents our hat trick of rating improvements. We are very proud that the top three rating agencies have upgraded mBank's ratings in less than two months. This is an unprecedented situation in the Polish banking sector. More importantly, these changes have turned mBank, us, into a clear investment grade. The rating agencies' decisions were driven by three main observations. First, improved capital position, also due to our issuance of PLN 1.5 billion of AT1.
Second, reduced legal risk related to the Swiss franc mortgage loans. Third, our strong profitability and the greater earnings stability. With this great news, now let's dive into our financial results on slide seven, starting with total income. The group's revenues declined marginally on a quarterly basis, but increased year over year. A slight quarter-over-quarter decrease in NII resulted from non-business reasons, mainly the shorter interest period. Net interest margin remained almost unchanged quarter- over- quarter, but fell compared to Q1 2024 due to strong growth in interest-earning assets. We saw an increase in net fee and commission income and in other income, driven by our active client base and the impact of updated fee tables introduced last year. Additionally, we achieved a high FX result, benefiting from high volatility in the currency markets.
Looking forward, we maintain our ambitions to comfortably exceed PLN 11 billion in total income for 2025, despite expected interest rate cuts. Moving to total costs. Total costs of the group, excluding compulsory contributions, declined by 10.4% quarter over quarter, mainly due to the variable compensation effect and personnel costs. On an annual basis, total costs excluding compulsory contribution increased by 9.5% due to growing employment and project-related costs. For this year, we expect costs to grow further at low double-digit pace, driven by new initiatives, rate increases, and already recognized higher BFG contributions. Regarding our cost of risk, LLP were nearly 6% lower than the previous quarter, but more than three times higher than in Q1 2024 when we reported net releases of LLP in the corporate segments. As a result, cost of risk reached 53 basis points, below our guidance.
For 2025, we expect still the cost of risk between 70 and 80 basis points, and Marek will provide more perspective on this later in the call. The cost of legal risk related to loans indexed to foreign currencies, recognized in Q1, reached PLN 662 million. Also here, Marek will provide more details later in our call. We maintain our view that 2025 is supposed to be the last year with a significant burden on our P&L. As a result, mBank's profit before income tax is close to PLN 1 billion. The net profit was PLN 706 million, translating into an ROE of 15.6% and a return on tangible equity of 19.2%. These ratios confirm our very strong profitability. Skipping the next slide, let's jump directly into our new lending business. We are very satisfied with our developments in the first quarter, as all loan products show positive trends.
Sales of mortgage loans increased by 6% year over year, driven by mBank's foreign branches. Sales in Poland remained stable year over year, despite a high contribution of loans dispersed under the 2% government program last year. Compared to Q4 2024, sales of mortgage loans declined by 5%, mainly due to pricing adjustments end of last year. However, we recorded an increase in sales each subsequent month. More than 80% of our Polish mortgage loan sales in Q1 were in the fixed interest rate format, which is a priority for us, as you know. The total share of fixed interest rate mortgages in the Polish mortgage loan book amounted to 43.5% to date. Sales of non-mortgage loans went up by 15% quarter over quarter and 22% year over year, with increased sales recorded both in Poland and our foreign branches.
Moving to the corporate loans, the volume of newly signed loan agreements in Q1 2025 increased by 15% quarter over quarter and nearly 34% year over year. We noted an increase in all corporate loans by more than 40%, except for the trade finance, with all customer segments contributing to this growth. We are on a good path to capture market share, with new sales turning into future drawings. Our off-balance sheet exposure has risen significantly by 57% year over year. Looking into the loan book on the next slide, we are seeing a growing loan book visible in the chart on the left. Corporate loans to corporate customers increased by 10.1% quarter over quarter, while loans to individuals increased by 1.4% quarter over quarter. This strong lending activity across all segments allows us to rebuild market shares.
The dynamics of loans in the corporate segment and the Polish mortgage loans clearly outpaced the sector's development, leading to a 0.4 percentage points increase year over year. Importantly, growing volumes were not achieved at the expense of lower margins. We improved margins compared to Q4 in both the retail banking segment and the corporate investment banking segment. In the upcoming quarters, we aim to grow above the market again in both segments. Moving to the liability side of our balance sheet, customer deposits remained stable in Q1 2025 compared to the year end 2024. We just had an increase in retail deposits and a decrease in corporate deposits. On an annual basis, we increased our share in both households and corporate deposits. We have a higher share in current accounts, confirming that we are the premier transactional bank.
Our market share in current accounts of households grew by 0.3 percentage points, while the market share in current accounts of enterprise declined slightly. However, on the corporate side, we have already exceeded our ambition of a 10% market share. In the next quarters, a single-digit deposit growth will be driven mainly by retail deposits, supported by a growing customer base, and increased wages and salaries. On slide 12, we have our capital position. Visible in the left charts, we maintain a significant buffer above the KNF minima and have built a comfortable situation with respect to capital ratios as well as MREL. On the capital side, let me point out two observations. First, the main driver of the Tier 1 capital is the inclusion of our Q4 profit, which was close to PLN 1 billion. Second, our Tier 2 is further reduced due to regulatory amortization.
To fill up this bucket, we are aiming for the first-ever Tier 2 placement in hard currency into international markets. Size is expected between EUR 300 million and EUR 400 million, and it will be conducted under our EMTN program. We do not have any pressure to execute the transaction if you see our very comfortable capital position. We are monitoring the market and are on schedule to execute the transaction during the course of 2025. Shifting focus to the right side of the chart, our RWA development shows a 10% year-to-date increase, driven by credit risk, mainly due to business developments, and operational risk, mainly due to regulatory changes, especially from the implementation of CRR3. As a result of the implementation of CRR3 and other regulatory changes, risk-weighted assets increased by approximately EUR 4 billion, so circa 4%.
The bank was prepared for an impact up to 6.5%, as CRR is, as you know, a very complex change, and still we do not have market practice. The lower impact was observed in both credit risk and operational risk RWA. In 2025, we expect further increases in RWA, broadly equally split between business growth and regulatory changes. Despite this, thanks to the action we have here undertaken, you see high profits and also our AT1 issuance, the bank's capital position is very strong, and we expect that at the end of the year, capital ratios will safely be above our targets. The income section I already have commented at the beginning of our call. Therefore, now let's directly go into the cost slide on page 14. In Q1, the group's total costs were affected by the BFG contribution. Costs excluding the BFG contribution decreased by 10.4% quarter on quarter.
The main driver is the decreased real part of remuneration. Year on year, we see 9.5% higher costs. Also here, the main driver is personal costs, which are higher due to increases in employment and wage increases. Noteworthy is the BFG contribution in Q1, which amounted to PLN 215 million, so 45% on a year-on-year increase, and it was the highest figure since Q1 2022. It included circa PLN 190 million for the Resolution Fund and a bit more than PLN 20 million for the DGS. The normalized cost-income ratio remains below 30%, and this really represents how efficient our business model is. In the following quarters, the cost-income ratio is expected to remain well below our strategic midterm target of 14%. With this, I am now handing over to Marek for the deep dive on LLPs and our mortgage loan legal risk developments.
Thank you, Pascal.
On slide 15, we can see our quarterly results of credit losses and cost of risk. In Q1, the net impairment losses and fair value changes reached PLN 165 million, and they were lower than a quarter ago by roughly 6%. Consequently, the cost of risk for the group stayed at 53 basis points, which was marginally lower than the cost of risk of 57 basis points seen in Q4 of 2024. What we would like to highlight as far as cost of risk is concerned and the quality of the loan book is concerned is that on the retail side, the payment discipline of retail customers remains good. I mean, a favorable macroeconomic situation following inflation and growing wages. Most of the provisions in retail that you see on this slide are driven by the usual portfolio provisions.
On the corporate and investment banking side, which is the other segment of our business, net impairment losses and fair value changes slightly increased, but they remained low, as typically in Q1, where we usually report low cost of risk in this customer segment. There might be, as for everyone else in the different parts of the world, some concerns with respect to the geopolitical situation. I would like to provide an upfront comment to the questions that may appear that we are very closely monitoring our loan portfolio for its resilience to tariffs and potential disruptions, disruptions in the supply chains, and disruptions due to the tariff consequences. That is in particular in the industries which are the most vulnerable to the negative impact. So far, we see no negative implications for our corporate clients.
Therefore, as far as the 2025 outlook on cost of risk is concerned, we do not change the outlook, and we keep our guidance in the range between 70 and 80 basis points. That is underscored by slide 16, where we report the loan portfolio quality. Here on slide 16, you can see that the non-performing loan ratio decreased by 30 basis points, 0.3 percentage points. At the end of March, it stood at 3.8 percentage points, which was considerably better than the Polish banking industry average. The quality of our portfolio remained way better than the sector average that was 5.1 at the reporting period. The group impaired loans also declined in Q1. We have seen a stable NPL ratio on the corporate loans, decreasing NPL ratio on retail.
That led, as I said, to the overall decrease of NPL ratio at the group level. The LLPs that we have created in Q1 led overall also to better positioning towards the upcoming risk, as expressed through a better coverage ratio. If you look at the Q1 coverage ratio that is based on the provisions calculated for loans in stage three and POCI portfolio, it went up, including stage one and stage two, to 73.5%. That is over 2 percentage points increase compared to the end of 2024. This brings us to the next slide, which, as Pascal has anticipated, provides the usual outlook on our legal risk. Here, we are happy to present you another quarter with a number of positive trends that continue with respect to the Swiss franc mortgage portfolio. You can see that the number of signed settlements consistently increases quarter after quarter.
In Q1 2025, we are also happy to report that on a monthly basis, we were able to sign over 1,000 settlements monthly. That led us to a quarterly result of over 3,000 settlements signed in Q1 2025, which is yet another high mark of the number of settlements achieved in a quarter. That brought a total number of settlements at the end of March to over 26,000, as you can see on the slide that's displayed. As we keep on signing settlements as we speak, I'm also happy to report that the most recent number is actually over 27,000 settlements already signed. As we have alluded to in the previous results presentation, it's not only settlements to undisputed clients, but also we are directing the settlements to clients who are in court with us.
This is one of the factors that is driving down the number of Swiss franc loan contracts in courts, which you can see on the right-hand side of this slide. These, combined with the downward trend that we see in the inflow of new lawsuits related to the Swiss franc. As in Q1, we have registered just 771 new cases related to Swiss franc loans, which is considerably down if you compare it quarter on quarter because a year ago in Q1 2024, we have scored 1,922 new lawsuits, which is a considerable decrease. Last but not least, the number of all pending court cases continues to decline. As we display on this slide, it went down by over 40% year on year and 20% quarter on quarter. On the next slide, we have provided you with a summary of financial dimension.
To that aspect, we keep on adding the provisions for the Swiss franc mortgage loans with PLN 662 million booked in Q1. The cumulative value of all the FX-related legal provisions since we have started creating them amounted to over PLN 17 billion, PLN 17.2 billion, to be precise. As you can see, also the number of active cases is significantly reduced. Now we have just 12,700 active contracts. 78% of them, that is nearly 10,000, are already in court. That leaves us with just 2,800 active contracts, which are not yet settled and not yet in court, which all in shows that the Swiss franc saga, as it comes to that part of the portfolio, is really coming to an end. This brings me to the summary slides.
On slide 19, on the slide that you are very familiar with, we demonstrate the profitability of the core business. As Pascal opened up with, the core business of the group continued in Q1 its excellent performance. In Q1, it generated PLN 1.2 billion of net profit, which translates into an ROE of 28.1%. Following the issuance of the AT1 capital, as we have shown earlier, we have introduced new metrics to better reflect the profitability of our business. That is return on tangible equity, ROTE. That also follows a number of European players who, after the issuance of AT1 capital, moved from ROE to ROTE metrics. For those of you that are not familiar with the metrics, that's basically net profit less the coupon on AT1 bonds by the average tangible equity.
That metric, as far as Q1 is concerned, reached 19.2% compared to ROE of 15.6%, which in both dimensions is actually super excellent results. To wrap up on slide 20, we present key takeaways after Q1 results. Summing up, that was yet again an excellent quarter as it comes to mBank business. Four main developments that we are particularly proud of that I would like to highlight as far as the management team is concerned is, first of all, we keep on delivering on our promise to grow the volumes and market shares. Second, both our core business and reported profitability remained at excellent levels. Third, we maintain best-in-class efficiency thanks to a strong profit generation capacity and disciplined cost management.
Finally, looking ahead into what remains of 2025, we remain optimistic about time ahead, and we remain optimistic about the imminent closure of the long-lasting Swiss franc saga. With that, we are happy to take questions.
First, let's listen to Arkadiusz Balcerowski on the macroeconomic view.
Thank you. Good morning. Let's—
Apologies for forgetting on your part and yourself demonstrating how well Polish economy is navigating through this difficult geopolitical situation.
No problem. Let me start with the fact that we still keep our forecast or keep with 8% growth of GDP in this year. As you can see in the first chart, consumer confidence remains quite well. However, it has stopped rising anymore. In this vein, we still perceive consumption growth similarly. We expect consumer growth to be close to the level we reached in 2024. We have two forces.
On the one side, we have lower growth of real wages. On the other side, we have lower propensity of consumers to just save. Overall, we expect that this will conclude—this will result in a quite stable growth, above 3% in consumption this year. On the other side, we forecast very strong growth in terms of investment. We expect investment to be just below 10% this year. We expect that this will be driven by both lower interest rates and especially more utilization of EU funds. As you can see on the chart, on my right-hand side, inflation is set to decline over 2025. Inflation topped just below 5% over the first quarter. Now we expect it to be substantially lower going forward. With that, we expect in April, inflation to slow down to just around 4%.
That means significant deceleration compared to almost 5% reached in March. Accordingly, as a result, we adjusted our inflation, our interest rate path accordingly. We now expect two 50 basis point cuts in the second quarter before resuming rate cuts at the beginning of 2026. Overall, we still expect the terminal rate in Poland to be around 4%, with some probability that it will be a bit lower than that level. The next slide, I will say that we expect still quite an increase in terms of corporate loans and household loans. Of course, household loans should be increased; both should benefit both from lower interest rates, which should increase consumers' creditworthiness and possibly another program from the government to encourage consumers to buy a new house. The jury is still out on this front.
In terms of markets, we have seen recently quite a substantial slowdown, quite a substantial decrease in terms of bond yields. This was connected to the change in NBP's rhetoric, which suggests that interest rates will be brought down substantially over the coming months. The last one is a złoty, and the złoty behaved differently against it. It depreciated against the euro as a result of the change in market pricing of interest rates in Poland. It went up against the dollar as a result of the widespread weakness of the latter. We now expect the złoty to be quite stable for now, and then gradual depreciation against the euro is likely according to our forecast. The last slide sums up our projections. Thank you.
Thank you, Marek. We are happy to take questions.
The first one is from Kamil Stolarski about our loan growth. Your loan growth trends above market. mBank seems more successful in loan growth. What would you attribute this to?
I'm taking the question. Thanks, first of all, for recognizing that. The answer is kind of simple because mBank is set up for organic growth. With the small pause with respect to the Swiss franc heavy weighting on our capital, you saw decades that the brand mBank and also all our colleagues have shown that the organic growth idea is embedded in the DNA. That is, I would say, the clearest answer we can give. Plus, obviously, we see our clients like our services, and we really want to show that the clients are in the center of everything we do.
Therefore, we also can keep margins still on a very decent level despite this growth, which shows that there is value in what we offer.
Okay, let's continue with Kamil's questions. Do you reiterate that 2025 should be the final year of material Swiss franc provisions?
Yeah, as Marek was showing, I mean, we are very satisfied with the current developments and trends because we, with our successful settlement offers, really can put an end to this saga. Therefore, we reintervent, and I also said it in the beginning, we believe that this is the last year for significant burden P&L-wise on the topic for us.
Another question of Kamil. What is behind the guided double-digit cost growth? Do you expect double-digit growth in personal cost?
First of all, the cost growth double-digit is also impacted by the BFG contribution, which is, as I announced, close to 50% higher than the year before. It is also visible that our personnel costs are growing. We announced that we expect that not just the wages are growing, we also expect that we have further employment due to our ambitions to have new projects and also higher sales forces, but also to cope with regulatory projects.
Thank you. The question of Jaromir Szortyka on CRR3. This 4% increase in risk-weighted assets, is this the full effect, or will there be some further increases in risk-weighted assets in the future? If so, could you provide the fully loaded impact?
Okay, maybe I'll take this one. On CRR, that is actually a fully loaded impact from today's perspective.
Please note that as it comes to the overall capital path for 2025 and onwards, certain uncertainty exists with respect to the two factors which are somehow difficult, not only for us, but for the industry to predict. First of all, under the new regulatory regime that went live in 2025, a number of so-called regulatory technical standards by the European Banking Authority are still in making, not yet issued, and they may impact the calculation going forward for us as well as for the peers. As it comes to further uncertainty related to the regulatory decisions as an internal model based for credit risk bank, we may also expect some regulatory conditions with respect to the model changes approvals going forward. This may drive potential uncertainty with respect to the capital path. Anyway, we expect this to be minor.
As far as the part of the question is concerned, that is a fully loaded impact.
Thank you, Marek. The next questions are from Jakub Koźlin. What is the level of WFD, so long-term financing ratio, and the sensitivity of NII to changes in interest rates and SOT NII?
I tried to split out this question. On the long-term funding ratio, as you know, we are one of the most frequent issuers into the market. We are not publishing the current number, but we have commented also in the past that we already met the long-term funding ratio, and therefore, it is not a concern for us. Moving to the sensitivity of our NII and the static balance sheet approach that we are taking and all the banks are taking, our current 100 basis points cut scenario by end of March is PLN 670 million, roughly.
You also need to keep in mind every time that we are banking with our foreign locations and also while our corporate customers kind of very internationally banking with us in several currencies. Out of this PLN 670 million, PLN 400 million would be the effect with respect to the Polish central bank rate. If you compare the overall NII contribution of the last 12 months to our sensitivity, we're talking about circa 7%. The last question was on SOT's data NII. Here, I just also can, like with the long-term funding ratio, we very comfortably meet this regulatory threshold. Therefore, it's also less of a concern in terms of us.
Thank you. Question from Maciej Marcinowski. Could you explain PLN 48 million loan loss provisions reversal in non-core segment? It happened second quarter in a row.
Will it continue in the next quarters?
Okay, I'll take this one. That's kind of a technical shift, if I may use that term. Since the credit provisions are booked against the active credit balance that remains on the balance sheet, as we are the writing of the residual part of the active Swiss franc loan portfolio, this one is reduced and to an extent is reflected in the increase of the legal risk provisions. With a diminishing magnitude, one may expect this to continue in the next quarters to an extent to which the active part of the balance sheet for Swiss franc loan portfolio still exists.
Thank you. It seems the last question will be again from Kamil Stolarski. When could we expect strategy update? What could be the pillars of the new strategy?
Yeah, very good question.
You can expect that we elaborate that in detail in September this year.
That ends our Q&A session. Thank you very much. Have a good day and great majówka.
Yeah, have a lovely majówka. Thank you very much. See you soon.
Dziękujemy bardzo. Thanks a lot.